Budgets are typically a tightrope for a Chancellor to precariously traverse. As well as having to effectively manage the economy, encourage growth and stimulate investment, there are a plethora of groups and individuals needing to be satisfied. Party management, the need to deliver for those demographic groups that fit into the government’s current vogue agenda, the desire to receive positive media coverage and reaction from business groups, and an eagerness for the Budget not to be exposed as regressive are all factors that need to be considered.
This year is no different. It comes in the context of the impending triggering of Article 50, speculation as to whether Britain is prepared for life outside the European Union, and demands for the proceeds of better than expected growth and lower borrowing to be spent.
The Chancellor, Philip Hammond, not naturally somebody you would perceive as a daredevil with his sober suits and grey hair, needs to set out measures showing that Britain is ready for business after Brexit, while also demonstrating that there is more to this government than just leaving the EU.
The Chancellor has made clear over the weekend that he is unwilling to dip into the additional £60bn now available to fund a spending spree. Instead any additional spending will need to come out of spending cuts elsewhere or tax increases. It is politically essential for money to be set aside to address the growing social care crisis and as short term relief for increases in business rates.
With commitments in the Conservative Party’s 2015 manifesto not to increase VAT, income tax or national insurance, his options are limited. One option that has been trailed over the weekend would be to increase national insurance class 4 rate, paid by the self-employed, by 3p in the pound, equalising the tax rate with employees at 12 per cent. Similarly, there have been suggestions that alcohol duty could rise.
Politically – with many of those self-employed likely to fit in the ‘ordinary working families’ cohort, and any changes in alcohol duty also likely to impact on this group – the Chancellor needs to beware he doesn’t undermine the Prime Minister’s agenda. By briefing his priorities in advance, Hammond has given himself some breathing room, but still, crossing that tightrope on Wednesday lunchtime for his final Spring Budget will be no easy task.